Merger Is Not the Most Effective Way to Expand: HK Exchange Chairman

Mergers and acquisitions are not necessarily the best way for a stock exchange to expand, according to the Chairman of the Hong Kong Exchanges and Clearing, Ronald Arculli.

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Traders sit at their desks at the Stock Exchange in Hong Kong.

There have been "more non mergers than mergers for one reason or another" despite attempts by exchanges around the world to cut costs and grow in size, said Arculli.

"As far as the Hong Kong Exchange is concerned, we don't believe that merger is the only way that you can expand your horizon," Arculli said Monday on CNBC's Squawk Box Asia. "Recently we came to an MOU (memorandum of understanding) with the leading exchanges in the BRICS country - Brazil, Russia, India, ourselves and South Africa - to cross-list our benchmark indices."

He added: "That's one example of how we can expose ourselves to other investors and help other markets expose themselves to Asian, Hong Kong and mainland investors. That's obviously a much more effective way to go."

Reuters had reported late last week that the Hong Kong Exchanges and Clearing was in talks with banks for a loan of $3 billion to help it finance an offer for the London Metal Exchange.

The Hong Kong stock exchange is the world's biggest bourse with a market value of about $18 billion, and sits on cash and short-term investments of around $3.9 billion as of end-2011.

Arculli declined to comment on the report, adding that any merger between exchanges would have to make commercial sense. The advent of new alternative trading platforms and automated electronic trading over the past five to ten years has reduced transaction costs for investors and reduced their reliance on traditional stock exchanges, he said.

"There's been fragmentation in the cash equity market where major exchanges have lost over 50 percent of trading (business)," Arculli said. "This has forced some thinking into whether there can be some synergies and whether there will be cost savings (from merging)."